Edward D. Jones & Co., the broker-dealer subsidiary of the Jones Financial Companies, will pay $20 million to settle allegations from the SEC that the firm overcharged its retail customers on new municipal bond sales.
From 2009 to 2012,
Edward Jones, which has about 14,400 advisers and 7 million customers, overcharged clients by at least $4.6 million by offering the bonds at a higher price than required by securities laws,
according to the Securities and Exchange Commission.
New bonds are required to be sold to clients by underwriters at an initial offering price that is negotiated with the bond issuer. But instead of offering the bonds to customers at that negotiated price, Edward Jones allegedly brought the bonds into Edward Jones' own inventory and then later offered them to customers at higher prices, sometimes after the bonds had already begun to trade in the secondary market, according to the SEC.
The SEC said the firm was “at least negligent” with regard to the overcharges.
“Their conduct was inconsistent with industry standards for, and written agreements governing, municipal underwriting,” the SEC said.
Edward Jones agreed to the settlement without admitting or denying the findings.
A spokesman for Edward Jones, John Boul, said the firm had fully cooperated with the SEC, and the firm was “glad to have this behind us.”
The SEC said its investigation was continuing, although officials declined to elaborate about that on a conference call Thursday. Mr. Boul said the firm's understanding is that the investigation was complete, and said he disagreed with the SEC's characterization.
The $20 million fine includes $5.2 million in disgorgement and interest to be paid to the customers who were overcharged. The head of the firm's municipal underwriting desk, Stina R. Wishman, was also barred from the industry for at least two years and agreed to pay $15,000.
“Edward Jones undermined the integrity of the bond underwriting process by overcharging retail customers by at least $4.6 million and by misleading municipal issuers,” Andrew J. Ceresney, director of the SEC's Enforcement Division, said in a statement. “This enforcement action, which is the first of its kind, reflects our commitment to addressing abuses in all areas of the municipal bond market.”
All clients will have been reimbursed under the settlement, Mr. Boul said. He noted that the $5.2 million would go to approximately 13,000 clients and average about $400 per client.
The firm was also charged with separate misconduct related to supervisory failures in reviewing certain secondary market municipal bond trades, according to the SEC.
The SEC said the firm did not have a supervisory system in place to make sure the markups it charged customers on certain transactions were reasonable. In 2013, Edward Jones began to undertake “significant remedial measures,” the SEC said.
